Fund Talk

I am a senior citizen and retired a decade ago. Of my savings and retirement benefits, 75 per cent is invested in equity shares and 25 per cent is in long-term dividend paying mutual funds, namely: Franklin India Blue Chip, Franklin India Flexi Cap, Sundaram Capex Opportunities, HDFC Equity, Reliance Growth, Reliance Vision, Reliance Equity, Sundaram Select Focus, DSP BlackRock Equity and Reliance Infrastructure. I would like to know which of these funds I should continue to hold and which I should redeem. I would also like to know which schemes to buy from the money received on any redemption.

S. Chand

Kolkata

You have said your savings and retirements benefits are in equity shares and mutual funds. We hope you have a good part of your total savings invested in debt options as well and that you have a regular source of monthly income. Given your age you should consider holding at least 60-75 per cent of your total surplus in debt, which could be a combination of bank fixed deposits, post-office schemes, corporate deposits and bonds. Otherwise, you should seriously consider booking profits from equity shares to rebalance your portfolio.

Debt is a must

Given that you are a senior citizen, you can easily earn a post-tax return of 9-10 per cent on debt options offered by government as well as corporates, having a good credit rating and a sound background. Doing this ensures that you have a regular income stream. More importantly, it will protect your capital. Hoping you would thus reduce your portfolio risk, we move on to your mutual fund schemes. Your choice of funds, at least a good number of them, appears to be based on their dividend track record. Funds such as Franklin India Bluechip or Franklin Flexicap have been regular dividend-payers. However, do not depend on mutual funds to pay regular dividends. They have no mandate to do so and are free to skip dividends in some years if they choose to.

Also, remember that it is not enough that a fund is a regular dividend payer. Its performance too should be consistent and superior to at least its benchmark. In this regard, both the Franklin funds have a good track record and also fit your criteria of consistent dividend payouts. Continue investments in HDFC Equity. Very few funds have replicated its superior long-term track record. Continue to hold DSP BR Equity, a steady performer that has unfailingly paid dividends in the last five years.

Exit the Underperformers

The recent slump in performance of all the Reliance funds that you hold is a matter of concern. Reliance Equity and Reliance Infrastructure especially, have been poor performers ever since their launch. You bought these funds during their NFO. We suggest you avoid buying through NFOs in future, unless you find the theme of the fund unique and believe that it holds potential.

We suggest you exit all the Reliance funds that you hold. You may suffer about 3 per cent annualised loss (since launch) in Reliance Infrastructure. However, you may be better off deploying the funds (redemption proceeds) elsewhere. Likewise exit Sundaram Select Focus, as it has trailed some of the top large-cap peers. You can exit Sundaram CAPEX Opportunities as well, unless you wish to take a contrarian call in a theme that's been an underperformer so far. The fund has a good choice of stocks. However, the sectors it holds have by and large been out of favour for almost two years now. By remaining invested in this fund, you may be missing out on the better opportunities a diversified fund may offer. You have earned a compounded annual return of 16 per cent since you bought the fund during its NFO.

We suggest you deploy the surplus in the following funds: UTI Mastershare, a large-cap fund. Though the fund isn't the best performer in its category, a 25-year old track record with a compounded annual return of 20 per cent per annum and uninterrupted dividend history for over two decades sets it apart. It is a good fund to hold for dividend-seekers. Add balanced fund HDFC Prudence to your portfolio. This would provide some hedge against sharp equity falls, and the fund has a good dividend record. Since we have not spotted any debt-oriented funds in your portfolio, we would like to suggest a few. Consider Birla Sun Life GSF Long Term, a fund with exposure to short and long-term government securities. To this add Canara Robeco MIP, which would offer minimal exposure to equity and the rest in debt.

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